Jason Garland: And Rachel, just to be clear, what your first question was monthly trends in the quarter, is that what you said?
Rachel Vatnsdal: Yes, yes. So exiting like what were order rates in September, for example.
Jason Garland: So I would say that July, August and September that each month got better. We had a very strong September. October, if you looked at kind of the average for the year. It’s well above what we’ve seen in other months, but not September. We had a very strong September, as we said in my prepared remarks, second half of the quarter orders picked up. We’ve maintained a strong order trend in October. But I’m not going to comment on, hey, four weeks in October is better than four weeks in July or four weeks in August. It’s significantly better than what we were seeing in Q2.
Rachel Vatnsdal: Perfect. That’s it for me. Thank you guys.
Jason Garland: No problem.
Operator: Thank you. Thank you. And the next question comes from Dan Leonard with UBS.
Dan Leonard: Thank you. First question on 2024 framing, I appreciate it’s early to guide 2024 gross margin, but Jason, you mentioned that margins should improve. And was that comment made using the second half of 2023 as a baseline or would you expect gross margins to improve from the full year 2023 result?
Jason Garland: Yes. So certainly versus the second half of 2023. So, again, a lot of similar framework that we – as Tony’s talked about for revenue. But so, again, we continue to try to appropriately right size the company. We feel that we’ve got a path to improvement, but again, it’s just an early read in terms of what that looks like for the year in terms of the guide, but certainly a step up from where we were in the second half of 2023.
Dan Leonard: Understood. And then I have a follow-up on China. Tony, I was wondering if you could comment on order trends in China, specifically, and reflect on how important is that region to the long-term growth algorithm of Repligen?
Tony Hunt: I think it’s – yes, it’s clearly important. China orders last year or China revenue last year represented about 10% of our total business, but remember about a quarter of that came from COVID. So three quarters came from what we call base. So it’s easy to do the math, it’s about $60 million, we’ll be down probably 20%, 25% this year on base. And we just need to move back into recovery, it’s not a huge number, but it’s an important region and we want to do well in the region and I think we have a really good portfolio of products that are differentiated and there’s no reason why we can’t grow and we’re not overly concerned about local competition. It does exist and what really needs to happen is the macro environment needs to get better.
We have a lot of accounts there that we work with, that we like, that like Repligen, so expect that when China turns it should be an improvement for us as well. And orders have remained light in the really – all through this year, it’s been – the order trend has been light. We’ve had a – we had a strong order backlog going in coming into 2023, which made the revenue numbers for China in Q1 and Q2 were much better than what we were bringing in then versus orders. So it should get better as we move through 2024, but it’s all macro driven.
Dan Leonard: Appreciate that. Thank you.
Operator: Thank you. And the next question comes from Justin Bowers with Deutsche Bank.
Justin Bowers: All right. Good morning and thank you. Just one on the cadence entering 2024 is the 4Q exit rate sort of a good jumping off for 1Q and 2Q of next year.
Tony Hunt: From a revenue point of view, from a margin point of view, from both?
Justin Bowers: Yes. From a revenue point of view.
Tony Hunt: Yes. I think – yes, so the one thing that Q4 has that Q3 and Q2 didn’t have is COVID. So I think you – when we get to our Q4 results, I think the base business in Q4 is a good jumping off point, which will be improved versus Q3. So we’re expecting that things will get better as we move into Q1 and Q2 next year. And I think that’s also reflected Justin in the fact that a lot of the orders that we’re talking about that we got at the end of Q3 and here in early in Q4 are going to get delivered in the first and second quarter next year.
Justin Bowers: Got it. Thank you. And the gist of that, it was just you were referencing growth over one half of this year versus second half of this year. So I just wanted to just clarify this, the quarterly cadence.
Tony Hunt: Yes, but it’s based business.
Justin Bowers: Yes. Okay. And then just in terms of orders, and I know the business has transformed quite a bit over the last few years, but is there – when you look across your accounts, are there differences in order patterns or certain seasonality just either by account or by geography? I mean we see that in some of your peers and just also noting that you do have a unique and different mix of business. But at a high level, is there any way you could characterize sort of like the seasonality, whether it’s by customer or by geography on sort of a normalized basis as such a thing exists anymore?
Tony Hunt: Yes. It’s a great question. I would say that this is not an – we know it’s not a normal year, so trying to really draw conclusions on order patterns in what’s being like a topsy-turvy year between inventory build and destocking and then conservatism on capital spend and delayed projects. I think the way I look at it, Justin, is a little bit like, are we beginning to see improvements in our funnel, right? And that is what’s the most encouraging piece for me is that, even though we’ve had a good order quarter in Q3, we’ve been able to replenish that 50% and above probability funnel in the same time period. So that’s what’s encouraging is that there’s more opportunities moving through, which is spread across pharma and CDMO and integrators.
So that’s what I’m looking to see, what progress do we make in Q4, what progress do we make in Q1? I think trying to draw a conclusion on order patterns as we’ve gone through this year isn’t going to tell us a whole lot about what the future’s going to look like.
Justin Bowers: Got it. Okay. Thanks, Tony.
